Arlington Public Schools' $1.5 million deficit: How we got here

Arlington residents, town officials and School Committee members are still looking for answers to the question raised in the weeks following Superintendent Kathleen Bodie’s initial announcement: how did the Arlington Public Schools’ financial situation reach a $1.5 million deficit in August?

By Maria Chutchian/Staff Writer

Wicked Local

By Maria Chutchian/Staff Writer

Posted Sep. 17, 2010 at 12:01 AM
Updated Sep 17, 2010 at 5:16 PM

By Maria Chutchian/Staff Writer

Posted Sep. 17, 2010 at 12:01 AM
Updated Sep 17, 2010 at 5:16 PM

Arlington, Mass.

» Social News

Arlington residents, town officials and School Committee members are still looking for answers to the question raised in the weeks following Superintendent Kathleen Bodie’s initial announcement: how did the Arlington Public Schools’ financial situation reach a $1.5 million deficit in August?

School officials have attributed the deficit to rising costs and shrinking revenue, but interviews with town officials and a close look at the schools’ financial documents show wider-range issues were involved. A communication breakdown, unreliable record-keeping throughout recent years and assumptions made by officials in regards to the solvability of the situation deepened the intensity of the situation that many believe could have been dealt with earlier and in a more efficient manner.

Summer salaries

A deficiency in funds to cover the two remaining summer pay periods was the red flag that auditors brought to town comptroller Ruth Lewis’ attention in mid-August, prompting School Committee members to question the system through which teachers are paid during the summer months.

According to Lewis, APS teachers have the option of receiving the whole amount of their annual salary during the 10-month school year, or they can choose to spread it out by receiving paychecks during July and August. This process is complicated by the fact that the fiscal year ends June 30 and that beginning July 1, the rest of the school system is already operating in the new fiscal year, but teacher summer salaries are still coming from the budget of the fiscal period that just ended.

The key to ensuring this system succeeds is to set aside sufficient funds in the budget to pay for those summer’s salaries, Lewis said. When she was notified by the town’s auditing firm, Powers & Sullivan, that only $1.5 million had been carried over from the FY10 budget to cover the remaining summer pay periods instead of the $3 million that was needed, the deficit became a reality. It was publicly announced Aug. 25.

Lewis said she did not notice the $1.5 million difference before Powers & Sullivan pointed it out to her because she was also responsible for balancing the budget for the rest of the town at the same time and the figure slipped by her.

Bodie and Chief Financial Officer Diane Johnson said their plan was to take the remaining $1.5 million from the FY11 budget and make up the difference with cost-saving measures and the collection of overdue fees and payments from out-of-district sources. Johnson said she has been told that this process has been commonplace for years, but that no records documenting this exist. Lewis said that method does not comply with the town’s budgeting process.

“They thought they could take care of it themselves – they wanted to take some from 2011 but didn’t realize that you can’t do that,” Lewis said.

Page 2 of 4 - Johnson said this procedure will not happen again and that next year’s summer salaries have already been encumbered.

Special education

Bodie and Johnson said special education costs accounted for $800,000 of the extra expenses. State law mandates that towns must provide special education services to students who qualify either within their own school districts. If the district cannot provide those services, APS must pay to send those students to other schools outside of the district. In short, Arlington must pay for special needs students that live in town to attend schools outside of the district and towns that send their students to Arlington must make tuition payments to APS.

According to special education tuition figures provided by Johnson, unforeseen private school increases amounted to $83,400, special education collaborative LABBB tuition rose by $150,000 and out-of-district placements that were added during the course of the year accounted for a tuition increase of $590,180.

According to the FY11 revenue detail projections and FY10 budget breakdown, APS was expecting $525,000 in special education payments as well as tuition from Germaine Lawrence, a group home and educational facility for troubled young women, by June 2010. The district only took in $13,084, or 2.5 percent of what was expected in revenue from those sources because payments were not made on time.

A special education report released by APS in March shows a total of 1,046 in- and out-of-district students that are categorized as special needs in FY10. Only 95 of those students were placed out of the district, while the rest remained within Arlington schools either full or part-time.

The special education report shows the district had 809 special education students in 2005, reached 907 in 2008 but went back down to 804 in 2009. However, an APS five-year budget analysis found that special education costs have increased 43 percent since FY05. The combination of overall special education contract services, preschool programs, out-of-district tuition and transportation costs totaled $4.9 million in FY09, according to an expense report from that year.

The same analysis shows a decrease in school and town funds allocated for special education tuition costs to other schools, down a total of $76,500 between 2005 and 2009. However, grants and fees designated for out-of-district special education tuition rose $1.3 million over those years, proving that tuition to other schools has continued to be a growing expense for the district. FY10 revenue reports show APS received a total of $104,000 less in special education grants than was expected.

LABBB

Another $450,000 piece came from the assumption by school administration that there were still funds left in the LABBB credit reserve. LABBB, a special education collaborative that provides funding to APS and four other nearby districts, allocates a specific amount to each district annually. This year, Arlington did not receive the $200,000 it was expecting from LABBB.

Page 3 of 4 - According to Johnson, she was never notified that $250,000 worth of LABBB credits had been depleted prior to her hire as CFO last September, but were still included in the FY10 budget, which she did not prepare. Bodie said the miscommunication must have occurred between the former CFO’s departure in the summer of 2009 and Johnson’s start date in September 2009.

Bodie, who sits on the LABBB board of directors, also said there was no way of knowing the money had been completely used unless someone in the administration specifically asked LABBB distributors about the credit balance. She said that question was not asked until the end of FY10 because it had been assumed that the money would be there.

An analysis of the district’s special education program released in March shows an unspecified amount of LABBB credit was accumulated prior to FY07 and significant amounts were used between FY07 and FY09. A total of $1,550,000 worth of credit was spent during that time.

Where are those reserves?

While other undocumented reserve funds were reportedly used during administrations prior to Bodie’s, Lewis and Johnson confirm that no such reserves exist at this time. A special education reserve was established and used throughout former Superintendent Nate Levenson’s tenure. No concrete documentation could be found to account for how the reserve obtained its money, but Johnson believes it was funded with small cutbacks in various departments throughout the school system. Lewis said by the end of FY06, the reserve fund had $300,000 in it. By the end of FY08, half of that had been used for a special education in-district improvement project. The other half was used in FY09, according to budget reports.

Transfers

A March 2009 report from Powers & Sullivan, found what they called a “deficiency” in the school’s budgeting system. Cash that was generated within specific departments but placed in revolving accounts — athletic and building rental fees are examples — was occasionally transferred to other areas of the school district if it was deemed by school officials that extra funds were needed elsewhere, Lewis said. School officials have the authority to make such transactions without the approval of the town comptroller because they all lie within the general operating budget.

Though the review found no misuse of the funds, the auditors still highlighted the revenue-transferring procedure as an issue that Johnson said will be amended for FY11. With no records of how much money was taken out of certain accounts and placed in others during the last few years, there is no method of tracking such changes, she said. Johnson told the School Committee that all expenditures will, from now on, be paid for directly out of the appropriate accounts.

Page 4 of 4 - Lewis described these transfers and how they were tracked as a process that varied depending on who was in charge.

“When a different administration comes in, it has different way they want to see things done,” she said. “Nate [Levenson] had a vision for the particular way he did things and Diane [Johnson] and Kathy [Bodie] have a different view.”

Out-of-district revenue and late fee payments

Since 2005, APS has seen its dependence on grants and fees as a percentage of the whole budget rise. Five years ago, what APS calls “out-of-district revenue” made up 10 percent of the overall budget, while this year it accounts for nearly 20 percent. Out-of-district special education tuition accounts for 14 percent of the total budget, up from 10 percent in 2005. These sources of revenue are what Bodie and Johnson continually refer to as “volatile” areas due to the lack of a concrete fee collection system, which has been updated for FY11.

In a statement released late last month addressing the deficit, Bodie said the schools received lower fee payments from the full-day kindergarten program, elementary instrumental music program and building rentals, but updated revenue reports show all three of those areas took in more cash than was expected.

Johnson said the statement was based on fees that had been collected by the end of the fiscal year, which were less than what had been budgeted. The accumulation of fees came after the books had closed on FY10, and therefore could not be applied to the final amount.